Saudis increase their oil production to burst the bubble February 26, 2011

SAUDI Arabia, the world’s top oil producer, has raised its production to compensate for the loss of output from Libya during political turmoil in the Middle East.

The International Energy Agency confirmed that Saudi Arabia was stepping in to cover the fact that many platforms producing high-grade oil from Libya have been shut down because of the unrest.

It is believed that the Saudi state oil company had increased its output to more than 9 million barrels per day – a rise of more than 700,000 barrels. The worsening situation in Libya has led to a loss of about 1.2 million barrels out of its 1.6 million barrels of daily output.

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European refineries have been particularly worried about a shortage of high-grade crude, of which Libya is a key supplier.

However, the news of Saudi Arabia’s intervention eased the spot price of oil, which had risen to a two-and-a-half-year high above $US119 at one point on Thursday. Yesterday, Brent crude dropped to $US111 a barrel. But it still closed up 9 per cent for the week, reflecting continuing unrest in the wider oil-producing region.

ICAP Shipping analysts said yesterday: ”In terms of pure volumes, there are ample supplies of crude that can be brought to the market if there is a

prolonged disruption of exports [from Libya]. But with the lion’s share of Libyan crude comprised of light, sweet grades, it is also not entirely clear how global trade flows will be affected.”

International Energy Agency figures show that Saudi Arabia has 3.5 million barrels a day of spare capacity, while the United Arab Emirates could add 330,000 barrels, Qatar could put on 180,000, and Kuwait 230,000. While not all of this would be likely to come on stream at once, Middle East production is still 1.7 million barrels a day lower than it was at the height of the oil price spike in mid-2008.